USD/JPY Bulls Charge Higher as Rising Yields and Inflation Expectations Boost Dollar
Technical Analysis:
USD/JPY advanced robustly on Friday, driven higher by rising U.S. Treasury yields and bullish market sentiment, reaching above the critical 145.00 level to form a bullish hammer candlestick on daily charts. The pair was buoyed primarily by U.S. 2-year yields, which gained significant traction following a sharp rise in the University of Michigan’s 12-month inflation expectations to 7.3% from 6.5% previously. The uptick in inflation forecasts reinforced market expectations that the Federal Reserve will remain vigilant, thus underpinning dollar strength. Additionally, supportive macro sentiment was further bolstered by stronger U.S. equities—particularly in the tech sector—and rising oil prices, collectively reducing yen demand as a haven currency.
From a technical standpoint, Friday’s bullish hammer formation above the pivotal 145.00 psychological support and near the daily Ichimoku conversion line highlights increasing bullish conviction. Immediate resistance is now clearly defined at the Ichimoku cloud base at 146.45. A sustained break and daily close above this level would confirm bullish continuation, targeting the May 15 high at 147.67. Above this, the upper daily Bollinger Band at 148.17 becomes a critical upside target, providing a clear benchmark for bullish momentum. Momentum indicators, including a turning daily RSI and bullish stochastic crosses, further support a near-term upward bias, though approaching cloud resistance warrants caution.
On the downside, robust technical support is found initially at 144.27, marked by the convergence of the 21-day moving average and the Ichimoku baseline. Just below, psychological support at the May 7 high of 144.00 should offer a solid floor. Despite current bullish momentum, traders should remain vigilant of potential shifts in sentiment ahead of next week’s crucial G7 meetings of central bankers and finance ministers. Given uncertainty around global policy coordination, increased demand for protective yen options has been noted, reflecting underlying caution. Additionally, signs of yen repatriation flows and recent stabilization in speculative positioning suggest yen bulls remain active beneath the surface, potentially limiting sustained USD/JPY upside beyond 147.00 in the medium term.